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Endocyte's surprise move .pdf

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Endocyte's surprise move stuns Wall Street, raises questions about company's future
June 5, 2017
John Russell
Is it the beginning of the end for Endocyte Inc., or just another setback in its two-decade struggle to develop smart
drugs to fight cancer?
At the moment, investors are heading for the exits, after the company announced Friday it was laying off 40 percent
of its staff and scaling back its drug programs.
Shares of Endocyte plunged 30 percent on Friday, and slipped another 7 percent on Monday, leaving them at around
$1.78 in midafternoon trading.
That’s down from a high of $28.17 just three years ago, when the company was viewed as a rising star, having raised
tens of millions of dollars in venture capital and $75 million in an initial public offering in 2011.
One of the company’s biggest boosters on Wall Street, Wedbush Securities analyst David Nierengarten, on Friday cut
his rating from outperform to neutral and lowered his price target from $8 to $2 a share. He is no longer valuing
Endocyte as a red-hot start up with huge earnings potential. “We value the company at cash,” he wrote to clients.
Other analysts ran out of patience long ago. Jefferson Research advised clients last year to sell their shares, citing a
weak balance sheet and weak operating efficiencies.
So what was the latest news that clobbered the stock? It was a decision by the company to discontinue trials on a
cancer drug called EC1456 and to narrow development of another cancer drug, EC1169, to include only certain types
of patients.
The news stunned investors, coming just as Endocyte was scheduled to release data on the two programs at the
American Society of Clinical Oncology’s annual meeting in Chicago.
In a press release, the company said EC1456—which some analysts saw as the company’s most valuable program—
“did not yield the level of clinical activity necessary to support continued advancement of this agent.”
Now, the company will shift its pipeline focus to other cancer treatments. One of them is a CAR T-cell adapter
program, which is in preclinical stage, with a pediatric study planned for next year.
In the meantime, Endocyte will cut about 30 jobs, leaving it with 47 employees. The company took a one-time charge
of about $2.4 million related to severance benefits and the accelerated closure of the EC1456 trial.
“We are very grateful for all the contributions over the years from our dedicated, talented team of employees, who
have devoted so much of themselves towards helping advance our efforts to bring our innovative, targeted therapies
to patients with cancer and other serious diseases,” CEO Michael Sherman said in a press release.
A company official said Monday that Sherman was busy at the cancer conference in Chicago and unavailable for
further comment.
The latest developments mark a huge comedown for Endocyte, which less than a decade ago was seen as the next
hot biotech, and could end up as a powerful economic engine in Indiana.
The company was developing “smart drugs” to fight cancer with a technology that delivered a high dose of cancer
drugs to diseased cells, while leaving healthy cells untouched. Indiana officials said the drugs could help save tens of
thousands of lives. In 2008, Endocyte was named one of Indiana’s “50 Companies to Watch” by the state for its
success in raising funds and in creating jobs.

But behind the scenes, the company was struggling. It worked for 13 years on one drug, vintafolide, to treat ovarian
cancer, spending tens of millions of dollars. But in 2014, clinical trials showed it didn’t improve on existing therapies,
and the drug was scrapped.
In 2016, founding CEO Ron Ellis resigned. The company has yet to launch a product, while it burned through tens of
millions of dollars in R&D and overhead costs. Last year, the company lost $44.7 million.
Now, with the latest setback, the big question is whether Wall Street has run out of patience.
After the company announced its news Friday, executives held a conference call with analysts to explain why the
company was taking the “difficult steps” in shrinking the organization. Then they threw the call open for questions.
Not a single analyst bothered to ask a question. It’s unclear whether anyone was even on the line.

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